Shares of The Gap, Inc. (GPS) have dropped 4.2% since the company posted disappointing comparable store sales (comps) data for August, on Sep 4, 2014. Per sources, this resulted from the tough retail environment leading to soft customer demand.
Gap’s August comps slipped 2% against a 2% rise in the comparable period last year, as a result of weakness witnessed at Gap Global and Banana Republic Global brands, partly offset by improvement seen at the Old Navy Global brand.
Comps at Gap Global and Banana Republic Global descended 6% and 2%, respectively, against a 2% increase at both brands last year. Old Navy comps climbed 2%, following a 1% improvement last year.
However, Gap’s net sales of $1.23 billion in Aug 2014 remained flat with the year-ago period.
Apart from Gap, other retailers such as Costco Wholesale Corp. (COST) and L Brands, Inc. (LB) also posted their August comps data on the same day, witnessing increases of 7% and 5%, respectively.
Coming back to Gap, this apparel and accessories retailer recently recorded strong second-quarter fiscal 2014 earnings. Backed by healthy merchandise margins and tight operating cost management, the company’s quarterly adjusted earnings came in at 70 cents per share, up 9.4% from the year-ago comparable quarter earnings of 64 cents and a penny ahead of the Zacks Consensus Estimate.
Also, net sales for the quarter inched up 3% to $3,981 million, thanks to the company’s strategic initiatives, including the enhancement of omni-channel capabilities, global growth and effective inventory management. Moreover, the top line was marginally ahead of the Zacks Consensus Estimate of $3,979 million.
Following the second-quarter results, Gap adjusted its fiscal 2014 earnings per share guidance to the range of $2.95–$3.00 compared with $2.90–$2.95 forecasted earlier. The current Zacks Consensus Estimate for the same is pegged at $2.98 per share, falling within the company’s projection.
Overall, Gap remains satisfied with the improvement shown by Old Navy and it intends to focus on boosting sales at its other segments as well in the second half of the current fiscal. However, management envisions gross margins for its Gap brand to be pressurized in Sep 2014, given the brand’s August sales performance.
Gap currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry includes Citi Trends, Inc. (CTRN) with a Zacks Rank #1 (Strong Buy).
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